By Nigam Arora
To gain an edge, this is what you need to know today.
Long Bond In Danger Zone
Please click here for a chart of 20+ year Treasury bond ETF (TLT).
Note the following:
- The chart shows that TLT has dipped back into the danger zone. As a member of The Arora Report, you have been ahead of the curve about the potential of rising yields and the impact on the stock market, especially the AI trade. More importantly, rising yields have already been taken into account in the Arora Protection Band. This morning, many informed investors are scrambling for cover, but those following the Arora Protection Band are already set.
- It is not just the U.S. A global bond route is taking place this morning. Japan is at the center.
- The yield on the 10 year Japanese government bond (JGB) reached 3%. This JGB yield is the highest since 1996. Here are the reasons:
- Treasury Secretary Bessent is putting pressure on Japan to strengthen the yen. In The Arora Report analysis, the easiest way to strengthen the yen is for the Bank of Japan (BOJ) to raise interest rates.
- There is a report that Japan’s next budget may be the largest ever, causing the deficit to rise.
- The foregoing is adding to existing concerns about large government debt.
- Yields in France and Germany are rising. The reason is that new data shows inflation in the Eurozone has risen to 3.3%. In The Arora Report analysis, the European Central Bank (ECB) is likely to raise rates.
- Rising yields are bringing in selling in stocks in the early trade, especially in the AI trade.
- Oil is rising on the news that two supertankers have been hit in the Strait of Hormuz. Rising oil is sparking inflation worries and, in turn, rising yields.
- On the positive side for the stock market, the momo crowd is buying stocks, ignoring rising yields and rising oil. The reason is that momo gurus have two narratives. When yields rise or oil rises, momo guru’s narrative is that these have nothing to do with AI stocks, so they urge their followers to buy AI stocks. On the other hand, when yields fall or oil falls, momo gurus give these as reasons to their followers to buy stocks. There is a large swath of investors who do not understand that the momo gurus’ real job is not to provide objective analysis but to run up stocks in the disguise of analysis.
- For those who portfolios are heavily concentrated in the AI trade and want to develop next level knowledge, especially relative to the global bond route, a podcast titled “The Next Phase Of AI Part 3: AI’s High Stakes Transition – The Risks Investors Are Underappreciating” will be published shortly in Arora Ambassador Club.
- Expect blind money to flow into the stock market today and tomorrow. Blind money is the money that flows into the stock market on the first two days of the month without any analysis irrespective of market conditions.
- JOLTS job openings and ISM Manufacturing Index will be released at 10am ET and may be market moving.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), Meta (META), and Tesla (TSLA).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).
Momo Crowd And Smart Money In Stocks
The momo crowd is *** (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is *** stocks in the early trade.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary very, very short-term early stock market indicator is ***. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Gold
The momo crowd is *** gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
Markets
Interest rates are ticking up, and bonds are ticking down.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
S&P 500 futures are trading at 7649 as of this writing. S&P 500 futures resistance levels are 7700, 7831, 7900 : support levels are 7318, 7194, and 7032.
DJIA futures are down 313 points.
Gold futures are at $4378, silver futures are at $65.62, and oil futures are at $87.95.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. This is a good way to protect yourself and participate in the upside at the same time.
You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash. When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks. High beta stocks are the ones that move more than the market.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
